This paper addresses important issues related to finite-difference time-domain modeling for microwave breast cancer detection. We present a simple and efficient way of modeling dispersion for various types of biological tissue, in the range of 30 MHz-20 GHz. Propagation and absorbing boundary conditions are modified accordingly. Results from three-dimensional simulations of a semiellipsoid geometric representation of the breast terminated by a planar chest wall illustrate the effect of certain important aspects of the detection problem including: 1) the pulse distorting effects of propagation in frequency-dependent tissue; 2) the choice of the surrounding medium; and 3) the transmitter location relative to the breast and chest wall. In particular, it is shown that the presence of the chest wall can affect greatly the system's detection abilities, even for tumors that are not located in the proximity of the chest wall.